SAN FRANCISCO A slight pause in the semiconductor industry prompted a research firm on Tuesday (August 31) to increase its capital spending forecast for 2004 while lowering its outlook for 2005.
Earlier this year, Adams Harkness Inc. projected that capital spending in the semiconductor sector would increase by 50 percent this year, from about $31 billion in 2003, to $47 billion in 2004. In 2005, the firm projected that capital spending would jump 25 percent to $58 billion.
The firm has revised its forecast up to 60 percent growth, or nearly $50 billion, in 2004. But it has also lowered its 2005 forecast to only 10 percent growth, or nearly $55 billion.
"Based on the fact that foundries are currently running above 95 percent capacity utilization, capital spending budgets remain steady, and 300-mm fab projects remain on track, we expect 2005 to be another strong year for the industry," said Avinash Kant, semiconductor capital equipment analyst at Adams Harkness, in a report.
"Of course, very strong sequential growth in 2004 [close to 60 percent] would likely temper sequential growth next year," he said. "Based on our sensitivity analysis of orders, we are expecting modest 10 percent year-over-year growth in 2005."
There is some bad news for chip-equipment makers, however. "After strong growth over the last few quarters, the order momentum [quarter-to-quarter change] appears to be slowing," he said. "On average, orders were up close to 30 percent sequentially in the December quarter, up 25 percent in the March quarter, and up 15 percent in the June quarter, while September quarterly guidance for most of the leading equipment manufacturers appears to be in the range of flat to up 5 percent."
Order rates are projected to slow even more. "While none of the companies has talked about December orders yet, based on our proprietary research and channel checks, we are expecting the quarter's orders to be down sequentially," he said.
"Equipment stocks have recently pulled back significantly [30-to-35 percent from their January peak] in anticipation of weakening orders. The key question facing investors is whether the December 2004 quarter will be the beginning of a sustained downturn, or just a pause before 2005 proves to still be a strong year for the industry," he added.